Global stocks dip as investors assess fresh Russia-Ukraine peace talks, while oil falls as Shanghai goes into lockdown
Vyacheslav Madiyevskyy/Ukrinform/NurPhoto via Getty Images
- Global stocks began the week nervously as investors looked to a new round of Russia-Ukraine peace talks.
- The 10-year US Treasury yield on Monday rose above 2.5%, its highest level since May 2019.
- Oil prices fell more than 3% after China said it would lock down half of Shanghai for mass testing.
Global stocks got the week off to a nervous start as a steep rise in US Treasury yields signaled investors could be bracing for an economic slump.
As the war in Ukraine enters its second month, investors are keeping watch on developments, as the White House dialed back President Joe Biden's comment that his Russian counterpart Vladimir Putin "cannot remain in power." Negotiators from the two sides are expected to meet in Turkey early this week for a new round of peace talks.
Meanwhile, oil prices slid after China began a two-part lockdown of Shanghai to contain the spread of COVID-19.
US futures traded cautiously, with those on the Dow Jones and the S&P 500 broadly flat as of 6:20 a.m. ET. Nasdaq futures lost 0.2%, suggesting a lower start to trading later in the day.
The MSCI All Country World Index, which tracks stock markets in several emerging and developed nations, was down 0.03%.
Ukraine's President Volodymyr Zelenskyy said Sunday he's prepared to discuss neutrality and a compromise on the Donbas region with Russia, if these are backed by security guarantees.
Analysts pointed to Biden's comment on Putin as an interesting development in geopolitics. White House officials, including Secretary of State Anthony Blinken, tried to soften the impact by saying Biden wasn't calling for regime change.
But some foreign policy experts say Biden's words could escalate tensions further, and make reaching a diplomatic outcome to the invasion more complicated.
A series of key economic data reports is due this week, with the focus on the Personal Consumption Expenditures index on Wednesday, and the US jobs report for March on Friday. The PCE is the Federal Reserve's primary gauge of inflation, and a high reading could give it ground to act more aggressively.
Markets have raised the odds of a 50 basis point rate hike in May to 77%, analysts said, with expectations for the fed funds rate now closer to 3%.
The 10-year US Treasury yield was up 6 basis points on the day, and rose to as much as 2.5567%, its highest level since May 2019. It could continue to rise to 2.7% if markets begin to price in rate hikes for 2023, according to Althea Spinozzi, a senior fixed-income strategist at Saxo Bank.
The bond rout suggests fixed-income investors expect an economic downturn as the Fed begins to aggressively hike rates.
Oil prices fell thanks to concerns about the hit to short-term demand from Chinese lockdowns, dampening the uplift from Friday's rebel attacks on Saudi Arabia. China, the world's largest importer of crude, has restricted movement in Shanghai for mass testing due to a flare-up in coronavirus cases.
OPEC and its allies are due to meet Thursday, and UAE's energy minister said Monday the country will work with members to ensure the energy market is stable.
Brent crude futures dropped 3.7% to $112.99 a barrel, and West Texas Intermediate lost 4.1% to reach $109.16 a barrel.
In Europe, stocks on London's FTSE 100 rose 0.4%. The pan-European Euro Stoxx 600 gained 0.7%, and Frankfurt's DAX was 1.6% higher.
As long as global yields continue to rise and the Bank of Japan pledges unlimited support for its bond market, the pressure on the yen continues. The yen slumped 1% to a six-year low, and the dollar rose to as high as 123.1 yen, its strongest since December 2015.
In Asian stocks, the Shanghai Composite was about flat. Tokyo's Nikkei fell 0.7%, while Hong Kong's Hang Seng added 1.3%.
Gold dropped 1.2% to $1,928.75 an ounce.
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